Without a doubt, the knowledge of Fx trading has improved tremendously over the years and the future of forex trading is currently changing rapidly and shaped by many factors, including advances in technology like blockchain and changes in market dynamics.
This article explains the effects of the adoption of the blockchain technology, its expectations on the forex trading industry and what the future holds for forex traders.
What is blockchain?
Blockchain is a secure network that runs on the Internet and serves as a public or distributed ledger of data that can be used to create social networks, messaging applications, games, exchanges, storage platforms , etc. In fact, blockchain uses several protocols and consensus techniques to select network validators and optimize transaction speeds so that no centralized authority can charge a transaction execution fee. This is because blockchain is a decentralized technology that eliminates the need for a trusted third party or centralized authority and can eventually render today’s brokerage platforms obsolete.
What is foreign Exchange?
The foreign exchange market, also known as the Forex, FX or money market, is a global over-the-counter (OTC) market for currency trading. This market determines the exchange rate for any currency. The foreign exchange market facilitates international trade and investment by allowing currency conversion. For example, it allows a company in the United States to import goods from member states of the European Union, especially members of the European Union, and pay in euros, immediately, even if the company’s earnings are in US dollars. It also supports direct speculation and relative valuation of currency values and executed trade speculation, based on different interest rates between the two currencies.
The Application of Blockchain in Forex Trading
Blockchain technology has been adopted by various industries, including banking and finance, to reduce international transaction costs and reward loyal customers. The future implementation of blockchain technology in the foreign exchange market could facilitate the transition to a decentralized peer-to-peer platform where large-scale transactions are carried out by a large number of people of participants in the financial markets, allowing you to take advantage of the lowest possible transaction costs and maximize your profits. Once a transaction has been made, the blockchain and distributed ledger cannot be manipulated by anyone, and each transaction is publicly accounted for and recorded.
Advantages of Blockchain in Forex.
Forex trading using blockchain technology has many advantages. Traditional trading platforms measure payouts on a daily basis. Trading forex over the blockchain also means that retail traders will keep ownership of their capital. Let’s take a look at a few:
1. Automatic contracts execution
For trade finance applications, the main capability of blockchain technology is smart contracts. These are small, self-executing programs stored on a distributed ledger that automatically perform payments or other actions when specific conditions are met.
2. Transparency in forex space
The global and disparate foreign exchange markets have regulatory issues, which create significant trust and transparency challenges in the eyes of clients. Its decentralized nature contributes to much more transparent and immutable record keeping of individual transactions.
3. Easy Tracking
The blockchain creates an audit trail that records an asset’s provenance at every stage of its journey.
4. Timely transactions
Transactions can be completed faster and more efficiently by eliminating barriers and delays. Documents can be stored on the blockchain along with transaction details, eliminating the need to exchange paperwork. Which means that there will be no need to reconcile multiple ledgers for clearing and settlement. In addition, blockchain can reduce the forex transaction fees that brokers and central banks impose at the point of exchange.
5. Most important is the fact that the tokenized FX trading market can be open 24/7, instead of 24/5 like the current FX market. The biggest challenge will likely remain liquidity, as many small-cap currencies require their own risk management.
6. Increased efficiency of clearing operations.
Despite the potential benefits, some believe it may take time for blockchain trade finance solutions to become mainstream. A report by the Boston Consulting Group estimates that technologies, including blockchain, can reduce the operational and compliance costs of paper-based commerce by 10-15%, but says the consensus between banks and non-banks is that traditional blockchain applications in commercial financing are likely to be well established in the next few years.